There may be price increases for your order of Wendy’s chili.
The fast food chain with the red-haired mascot is leaving some in stitches after news it plans to test “dynamic pricing” as early as next year.
After the cookout, Wendy’s published a blog post Tuesday saying it has no plans to raise prices during times of high demand.
In its blog post, Wendy’s said that digital menus added at company-owned restaurants would “give us more flexibility in modifying the display of featured items.”
“This has been misinterpreted in some media reports as an intention to raise prices when demand is highest in our restaurants. We have no intention of doing so and will not increase prices when our customers visit us more. Any features we may test in the future will be designed to benefit our customers and restaurant staff members,” the company said.
Yet, Wendy’s WEN,
The announcement is also raising questions about what “surge pricing,” also called “dynamic pricing,” is in the first place.
Answer: It’s a pricing model that moves prices up when consumer demand grows – and it’s already happening with concert tickets, ride-sharing, airline tickets, and even groceries.
The move into fast food, however, is a newer area for pricing strategy. This comes at a time when food inflation is still a sore point for many people, especially when it comes to fast food prices.
Wendy’s broke the news in a recent earnings call.
“Beginning in 2025, we will begin testing more advanced features such as dynamic pricing and daypart offers, along with AI-enabled menu changes and suggestive selling,” Wendy’s CEO Kirk Tanner told analysts at the call, according to an AlphaSense transcript.
“As we continue to demonstrate the benefits of this technology in our company-operated restaurants, franchisee interest in digital menus is expected to increase, further supporting sales and profit growth across the system,” he said.
As the phrase suggests, dynamic pricing means that prices move instead of staying at a fixed point.
“It describes real-time prices that reflect changes in supply and demand,” said Kevin Williams, an economist at Yale University who studies how companies make pricing decisions. For Williams, the labels “surge pricing” and “dynamic pricing” mean the same thing.
The cost depends on a variety of data so that higher prices are due to higher demand or decreasing supply. You may have seen this in action when airfares rise while you’re trying to book a plane ticket right before Thanksgiving.
The pricing strategy can also adjust prices based on when someone starts shopping, such as a fashionista willing to pay more for a new collection, versus a bargain hunter, said Vivek Farias, a professor at the MIT Sloan School of Management that studies the science of dynamic pricing.
Overall, raising prices can maximize economic efficiency because it theoretically matches a product to the person who values it most, he said.
But companies need to do this carefully, especially if their customers are not used to it. “Or, when people see wild swings, it is perceived as price gouging,” she said.
“Companies need to be careful when adopting dynamic pricing, “otherwise, when people see wild swings, they perceive it as price gouging.” “
Airlines have pioneered dynamic pricing; they began changing rates based on demand as early as the 1980s, Farias noted. At the time, the strategy sparked angry reactions from the public.
Now the pricing model has spread. “This happens in all types of goods and services markets,” Williams said. But Wendy’s news may hit a new nerve.
“In other areas, we just accepted it,” Williams said.
But in some cases that acceptance came after an uproar.
Bruce Springsteen fans were enraged in 2022 over dynamically priced concert tickets through Ticketmaster reaching $5,000. Yet, Live Nation Entertainment Inc. LYV,
Ticketmaster’s parent company says it plans to set even more prices based on demand, following two years of strong recovery for concerts.
In a corporate earnings report last week, Live Nation CEO Michael Rapino said promoters and artists all want better prices to fill venues instead of leaving more tickets to scalpers.
“There is nothing comparable to algorithmic price gouging in concert ticketing,” a Live Nation spokesperson said. “Dynamic pricing in ticketing is a largely manual process that involves adjusting a small portion of available inventory, typically the best seats in the room, at prices closer to the full market value revealed in the resale markets. The vast majority of tickets are not dynamically priced.”
Will dynamic pricing work with food?
In fact, according to Phil Lempert, publisher of SupermarketGuru.com, dynamic pricing is already part of the grocery shopping experience.
Coding on “shelf strips” — which label underneath products on store shelves — can allow food companies to identify which products are selling and which are not, and then adjust accordingly, he told MarketWatch. This may allow stores to increase the price of avocados ahead of Super Bowl Sunday, for example.
“There’s been talk about dynamic pricing in grocery stores for years, but not much really happened until technology allowed it to become instantaneous,” he said.
Wendy’s says its new pricing strategies could help some customers get a deal.
The company said its technology investments will make it easier to modify its menus “to deliver discounts and value offers to our customers through innovations like digital menus, which will be rolling out in select U.S. restaurants.”
“Wendy’s has always been about providing high-quality food at a great value to our customers, and this recent investment will continue that, driving traffic and providing value during the slower hours of the day,” said l company in a follow-up email to MarketWatch.
The AI-infused menu changes and sales suggestions that Wendy’s will test in 2025 will be “based on factors such as weather that we believe will provide great value and an improved customer and crew experience.”
But it may be that some people don’t like the idea of timing their fast food run exactly.
“That could cause a whole bunch of weird things where customers might be strategic. It’s a little strange,” Farias said.
Who are the winners and losers with dynamic pricing?
“Usually when companies implement dynamic pricing, there are some winners and some losers,” Williams said. It’s a consequence he’s studied when it comes to airline tickets.
Dynamic pricing is a boon for passengers with flexible schedules who pay far in advance, but a loss for business travelers with few choices and late travel obligations.
How about someone looking for Wendy’s and its menu, including Dave’s Double and loaded nacho double cheeseburgers?
“I think the person who wins is the flexible, knowledgeable fast food eater, because that person probably knows how prices move,” Williams said.
On the other hand, “the person who gets hurt is the person who is the inflexible lunchtime consumer who really wants to go to Wendy’s and is faced with a higher price.”